10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40288

 

Design Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

82-3929248

( State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer
Identification No.)

6005 Hidden Valley Road, Suite 110

Carlsbad, California

 

92011

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (858) 293-4900

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

DSGN

 

The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

The number of outstanding shares of the registrant’s common stock, $0.0001 par value per share, as of November 5, 2021, was 55,662,501.

 

 


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

our plans to research, develop and commercialize our product candidates;
the initiation, progress, success, cost and timing of our preclinical studies, clinical trials and product development activities;
the therapeutic potential of our product candidates, and the disease indications for which we intend to develop our product candidates;
our ability and timing to advance our product candidates into, and to successfully initiate, conduct, enroll and complete, clinical trials;
our ability to manufacture our product candidates for clinical development and, if approved, for commercialization, and the timing and costs of such manufacture;
the performance of third parties in connection with the development and manufacture of our product candidates, including third parties conducting our preclinical studies and clinical trials as well as third-party suppliers and manufacturers;
our ability to obtain funding for our operations, including funding necessary to initiate and complete clinical trials of our product candidates;
the size and growth of the potential markets for our product candidates and our ability to serve those markets;
the potential scope, duration and value of our intellectual property rights;
our ability, and the ability of our licensors, to obtain, maintain, defend and enforce intellectual property rights protecting our platform technologies and product candidates, and our ability to develop and commercialize our product candidates without infringing the proprietary rights of third parties;
our ability to recruit and retain key personnel;
the effects of the COVID-19 pandemic on our operations; and
other risks and uncertainties, including those described under Part II, Item 1A, “Risk Factors” of this Quarterly Report.

Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A, “Risk Factors” of this Quarterly Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

Unless the context otherwise indicates, references in this Quarterly Report to the terms “Design”, “the Company”, “we,” “our, and “us” refer to Design Therapeutics, Inc., and references to our “common stock” refers to our voting common stock.

 

 

 

i


 

SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESS

 

An investment in shares of our common stock involves a high degree of risk. Below is a list of the more significant risks associated with our business. This summary does not address all of the risks that we face. Additional discussion of the risks listed in this summary, as well as other risks that we face, are set forth under Part II, Item 1A, “Risk Factors” in this Quarterly Report. Some of the material risks associated with our business include the following:

We have a limited operating history, have incurred net losses since our inception, and anticipate that we will continue to incur significant losses for the foreseeable future. We may never generate any revenue or become profitable or, if we achieve profitability, may not be able to sustain it.
We are early in our development efforts and all of our research programs are still in the preclinical or discovery stage. We have no history of conducting clinical trials to test our product candidates in humans.
Preclinical and clinical development involves a lengthy and expensive process with uncertain timelines and outcomes, and results of earlier studies and trials may not be predictive of future trial results. If development of our programs is unsuccessful or delayed, we may be unable to obtain required regulatory approvals and be unable to commercialize our product candidates on a timely basis, if at all.
Our product candidates are based on novel technologies, which make it difficult to predict the timing, results and cost of product candidate development and likelihood of obtaining regulatory approval.
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, cause us to suspend or discontinue planned clinical trials, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
The regulatory approval process is lengthy, expensive and uncertain, and we may be unable to obtain regulatory approval for our product candidates under applicable regulatory requirements. The denial or delay of any such approval would delay commercialization of our product candidates and adversely impact our ability to generate revenue, our business and our results of operations.
The COVID-19 pandemic could adversely impact our business and affect our operations, as well as the business or operations of our manufacturers or other third parties with whom we conduct business.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
We may rely on third parties to conduct, supervise, and monitor our planned clinical trials and perform some of our research and preclinical studies. If these third parties do not satisfactorily carry out their contractual duties or fail to meet expected deadlines, our development programs may be delayed or subject to increased costs, each of which may have an adverse effect on our business and prospects.
We contract with third parties for the manufacturing and supply of our product candidates for use in preclinical testing and planned clinical trials, which supply may become limited or interrupted or may not be of satisfactory quality and quantity.
Any approved products may fail to achieve the degree of market acceptance by physicians, patients, hospitals, healthcare payors and others in the medical community necessary for commercial success.
If the market opportunities for any of our product candidates are smaller than we believe they are, our revenue may be adversely affected, and our business may suffer.
If any of our product candidates are approved for marketing and commercialization and we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market our product candidates, we will be unable to successfully commercialize our product candidates if and when they are approved.
We may not realize the benefits of any acquisitions, in-license or strategic alliances that we enter into.
We may wish to form collaborations in the future with respect to our product candidates, but may not be able to do so or to realize the potential benefits of such transactions, which may cause us to alter or delay our development and commercialization plans.
We are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
Our business operations and current and future relationships with investigators, health care professionals, consultants, third-party payors and customers are subject, directly or indirectly, to federal and state healthcare fraud and abuse laws,

ii


 

transparency laws and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
If we are unable to obtain and maintain sufficient intellectual property protection for our platform technologies and product candidates, or if the scope of the intellectual property protection is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products may be adversely affected.
We may not be able to protect our intellectual property rights throughout the world.
We may rely on trade secrets and proprietary know-how which can be difficult to trace and enforce and, if we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
The price of our common stock could be subject to volatility related or unrelated to our operations.

 

 

iii


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Balance Sheets

1

 

Condensed Statements of Operations

2

 

Condensed Statements of Comprehensive Loss

3

 

Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

4

 

Condensed Statements of Cash Flows

5

 

Notes to Condensed Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

71

Item 3.

Defaults Upon Senior Securities

71

Item 4.

Mine Safety Disclosures

71

Item 5.

Other Information

71

Item 6.

Exhibits

72

Signatures

73

 

 

 

 

iv


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

DESIGN THERAPEUTICS, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and par value data)

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

357,662

 

 

$

2,379

 

Investment securities

 

 

36,056

 

 

 

33,712

 

Prepaid expense and other current assets (including related party amounts of $60 and $0, respectively)

 

 

1,572

 

 

 

142

 

Total current assets

 

 

395,290

 

 

 

36,233

 

Property and equipment, net

 

 

1,320

 

 

 

71

 

Right-of-use asset

 

 

3,743

 

 

 

 

Deferred offering costs

 

 

 

 

 

212

 

Total assets

 

$

400,353

 

 

$

36,516

 

Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable (including related party amounts of $20 and $20, respectively)

 

$

2,216

 

 

$

1,399

 

Accrued expenses and other current liabilities (including related party amounts of $10 and $0, respectively)

 

 

3,289

 

 

 

931

 

Total current liabilities

 

 

5,505

 

 

 

2,330

 

Operating lease liability, net

 

 

3,273

 

 

 

 

Other long-term liabilities

 

 

11

 

 

 

145

 

Total liabilities

 

 

8,789

 

 

 

2,475

 

Commitments and contingencies (See Note 9)

 

 

 

 

 

 

Convertible preferred stock, $0.0001 par value; no shares and 22,500,000 shares authorized, no shares and 22,012,499 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively; liquidation preference of zero and $45,625 as of September 30, 2021 and December 31, 2020, respectively

 

 

 

 

 

45,356

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000,000 and 60,000,000 shares authorized, 55,654,833 and 16,604,774 shares issued, 55,224,420 and 15,957,821 shares outstanding at September 30, 2021 and December 31, 2020, respectively

 

 

6

 

 

 

1

 

Additional paid-in capital

 

 

427,953

 

 

 

451

 

Accumulated deficit

 

 

(36,391

)

 

 

(11,923

)

Accumulated other comprehensive income

 

 

(4

)

 

 

156

 

Total stockholders’ equity (deficit)

 

 

391,564

 

 

 

(11,315

)

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

 

$

400,353

 

 

$

36,516

 

 

The accompanying notes are an integral part of these financial statements.

1


 

DESIGN THERAPEUTICS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Grant revenue

 

$

 

 

$

20

 

 

$

 

 

$

193

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development (including related party amounts of $98, $0, $188 and $8, respectively)

 

 

8,539

 

 

 

1,914

 

 

 

17,441

 

 

 

3,352

 

General and administrative (including related party amounts of $82, $60, $202 and $232, respectively)

 

 

2,798

 

 

 

489

 

 

 

7,263

 

 

 

1,310

 

Total operating expenses

 

 

11,337

 

 

 

2,403

 

 

 

24,704

 

 

 

4,662

 

Loss from operations

 

 

(11,337

)

 

 

(2,383

)

 

 

(24,704

)

 

 

(4,469

)

Other income, net (including related party expense amounts of $0, $0, $0, and $30, respectively)

 

 

19

 

 

 

63

 

 

 

236

 

 

 

44

 

Net loss

 

$

(11,318

)

 

$

(2,320

)

 

$

(24,468

)

 

$

(4,425

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.21

)

 

$

(0.09

)

 

$

(0.57

)

 

$

(0.17

)

Weighted-average shares of common stock outstanding, basic and diluted

 

 

55,155,030

 

 

 

25,701,737

 

 

 

42,759,656

 

 

 

25,606,779

 

 

The accompanying notes are an integral part of these financial statements.

2


 

DESIGN THERAPEUTICS, INC.

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net loss

 

$

(11,318

)

 

$

(2,320

)

 

$

(24,468

)

 

$

(4,425

)

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities

 

 

8

 

 

 

(42

)

 

 

(160

)

 

 

152

 

Comprehensive loss

 

$

(11,310

)

 

$

(2,362

)

 

$

(24,628

)

 

$

(4,273

)

 

The accompanying notes are an integral part of these financial statements.

3


 

DESIGN THERAPEUTICS, INC.

CONDENSED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Total

 

 

 

Convertible

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Stockholders’

 

 

 

Preferred Stock

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Equity

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

(Deficit)

 

Balance at June 30, 2021

 

 

 

 

$

 

 

 

 

55,114,729

 

 

$

6

 

 

$

426,680

 

 

$

(12

)

 

$

(25,073

)

 

$

401,601

 

Exercises of stock options and vesting of restricted stock

 

 

 

 

 

 

 

 

 

109,691

 

 

 

 

 

 

30

 

 

 

 

 

 

 

 

 

30

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,243

 

 

 

 

 

 

 

 

 

1,243

 

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,318

)

 

 

(11,318

)

Balance at September 30, 2021

 

 

 

 

$

 

 

 

 

55,224,420

 

 

$

6

 

 

$

427,953

 

 

$

(4

)

 

$

(36,391

)

 

$

391,564

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

 

 

22,012,499

 

 

$

45,356

 

 

 

 

15,957,821

 

 

$

1

 

 

$

451

 

 

$

156

 

 

$

(11,923

)

 

$

(11,315

)

Issuance of Series B convertible preferred stock, net of $288 of issuance costs

 

 

19,083,979

 

 

 

124,712

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock converted into shares of common stock

 

 

(41,096,478

)

 

 

(170,068

)

 

 

 

25,212,548

 

 

 

4

 

 

 

170,064

 

 

 

 

 

 

 

 

 

170,068

 

Initial public offering of common shares, net of $21,728 of issuance costs

 

 

 

 

 

 

 

 

 

13,800,000

 

 

 

1

 

 

 

254,270

 

 

 

 

 

 

 

 

 

254,271

 

Exercises of stock options and vesting of restricted stock

 

 

 

 

 

 

 

 

 

254,051

 

 

 

 

 

 

35

 

 

 

 

 

 

 

 

 

35

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,133

 

 

 

 

 

 

 

 

 

3,133

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(160

)

 

 

 

 

 

(160

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,468

)

 

 

(24,468

)

Balance at September 30, 2021

 

 

 

 

$

 

 

 

 

55,224,420

 

 

$

6

 

 

$

427,953

 

 

$

(4

)

 

$

(36,391

)

 

$

391,564

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2020

 

 

22,012,499

 

 

$

45,356

 

 

 

 

15,782,575

 

 

$

1

 

 

$

14

 

 

$

194

 

 

$

(5,748

)

 

$

(5,539

)

Vesting of restricted stock

 

 

 

 

 

 

 

 

 

104,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

 

 

 

 

 

 

15

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(42

)

 

 

 

 

 

(42

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,320

)

 

 

(2,320

)

Balance at September 30, 2020

 

 

22,012,499

 

 

$

45,356

 

 

 

 

15,887,346

 

 

$

1

 

 

$

29

 

 

$

152

 

 

$

(8,068

)

 

$

(7,886

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

 

 

$

 

 

 

 

15,640,133

 

 

$

1

 

 

$

 

 

$

 

 

$

(3,643

)

 

$

(3,642

)

Issuance of Series A convertible preferred stock, net of $270 of issuance costs

 

 

21,710,814

 

 

 

44,731

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of convertible debt and interest to Series A convertible preferred stock

 

 

301,685

 

 

 

500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlement of bifurcated conversion liability

 

 

 

 

 

125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of restricted stock

 

 

 

 

 

 

 

 

 

247,213

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29

 

 

 

 

 

 

 

 

 

29

 

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

152

 

 

 

 

 

 

152

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,425

)

 

 

(4,425

)

Balance at September 30, 2020

 

 

22,012,499

 

 

$

45,356

 

 

 

 

15,887,346

 

 

$

1

 

 

$

29

 

 

$

152

 

 

$

(8,068

)

 

$

(7,886

)

 

The accompanying notes are an integral part of these financial statements.

4


 

DESIGN THERAPEUTICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(24,468

)

 

$

(4,425

)

Reconciliation of net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation

 

 

47

 

 

 

1

 

Stock-based compensation

 

 

3,133

 

 

 

29

 

Amortization of premiums on investment securities, net

 

 

(103

)

 

 

(69

)

Non-cash interest expense

 

 

 

 

 

12

 

Non-cash interest expense—related party

 

 

 

 

 

26